Regulating for sustainable growth in the UK: What to expect in 2025

In her first Mansion House speech (on 14 November 2024), Rachel Reeves, the UK’s Chancellor of the Exchequer covered, amongst other things, the importance of sustainable finance in the government’s mission to grow the economy. In the Spring, the government will publish the first ever Financial Services Growth and Competitiveness Strategy aimed at giving the financial services sector the confidence it needs to invest. As part of the Mansion House speech, the Chancellor set out five priority growth opportunities on which the government’s strategy will focus, identifying sustainable finance as one of those opportunities. (For further details on the Mansion House speech generally, see our briefing here).

In October the government published a Green Paper setting out its vision for its new Industrial Strategy, which marks net zero and clean energy industries as core priorities. Within this context, the government has set out its ambition for the UK to be the world leader in sustainable finance. This includes delivering a regulatory framework to support sustainable growth and enable the private sector to realise the opportunities of the transition.

The sustainable finance package announced at Mansion House includes:

• next steps on sustainability disclosures and transition plans;
• a consultation on the value and use cases of a UK Green Taxonomy;
• regulation of Environmental, Social, and Governance (ESG) ratings providers;
• principles for Voluntary Carbon and Nature Markets (VCNMs); and
• co-launching a new Transition Finance Council with the City of London Corporation.

Below we look at these areas in more detail.

1. Sustainability reporting standards: The government intends to consult on requiring economically significant companies to disclose information using future UK Sustainability Reporting Standards, which will be based on the internationally interoperable International Sustainability Standards Board (ISSB) Reporting Standards. (See our guide to global sustainability reporting standards.) The FCA will use these standards to consult on updated disclosure requirements for UK-listed companies.
2. Transition plans: The government will also consult in the first half of 2025 on how best to take forward the manifesto commitment on transition plans in support of its ambition to become the global hub for transition finance and ensure the UK's regulatory framework is growth-focused, internationally competitive and maintains the UK's status as a global financial hub.
3. UK Green Taxonomy: The government published a consultation seeking views on whether a UK Green Taxonomy would be additional and complementary to existing sustainable finance policies, including in supporting market participants to make sustainable investment decisions, and the specific market and regulatory use cases which facilitate this. This will inform an assessment of the value of implementing a UK Taxonomy, and exactly how it could be targeted to ensure it is as effective as possible. The consultation closes on 6 February 2025.
4. ESG ratings: Regulation of the provision of ESG ratings is intended to increase transparency and investor confidence in ESG ratings, which provide an assessment of companies, funds or financial instruments and are becoming an increasingly important part of the market for sustainable finance. The previous government published a consultation on the regulation of ESG ratings providers on 30 March 2023. HM Treasury published a consultation response alongside a draft statutory instrument on 14 November (see our blog post here). The consultation response sets out the details of the expansion of the current regulatory perimeter to capture the provision of ESG ratings as a new regulated activity, including what activities will be captured. Work continues on other aspects such as transitional provisions, consequential amendments and market access routes for certain overseas providers. The deadline for technical comments on the draft regulation was 14 January 2025, after which the government will finalise the legislation. In its response, the FCA said it welcomed the government’s publication of their consultation response and the draft legislation. Once the legislation is finalised by the government, the FCA intends to consult on proposals for the future regulatory regime in 2025.
5. Transition finance: The Transition Finance Market Review report was published on 17 October 2024 and the government will be considering its recommendations over the coming months. The Review was focused on assessing how the UK can become the best place to raise transition capital, including how the UK can develop innovative financial products to unlock long-term capital. The government is delivering one of the key recommendations by co-launching the Transition Finance Council with the City of London Corporation. This will help build the UK's transition finance market to support higher emitters to finance genuine transitions towards net zero.
6. Voluntary Carbon and Nature Markets: The government sees a clear and appropriate role for the responsible use of high-integrity carbon and nature credits by companies or other organisations that wish to do so as part of science aligned climate and nature strategies. The government published a policy paper on 15 November 2024 setting out integrity principles for VCNMs. In early 2025, the government will consult on the proposed implementation of these principles into VCNMs and seek views on how they could be applied through guidance, standards and regulatory oversight.

What is clear from the Mansion House speech is that the government sees sustainable finance as one of the pillars of its regulatory growth ambition. With the government’s aim of delivering a world-leading sustainable finance framework, 2025 will be a year of significant review and consultation in the sector. The government will need to consider coherence with other international frameworks, including in the EU, as stakeholders may well be subject to multiple regimes.  It will be vital for the industry and other affected stakeholders to keep abreast of UK sustainable finance developments to ensure they can engage with the government and other regulators where appropriate.